Gold's marriage to dollar set to end-Barrick

Wed Jun 8, 2005 05:53 PM ET

NEW YORK (Reuters) - Gold's lengthy coupling to the dollar will end as supply/demand dynamics change and other currencies may come to the fore, Barrick Gold Corp. (ABX.TO: Quote, Profile, Research) CEO Greg Wilkins said at the Reuters Mining Summit on Wednesday.

"There will be a decoupling in the next 5 to 10 years," said Wilkins at the summit, held at the Reuters office in New York.

Gold is priced in dollars on international bullion markets, and the precious metal has a tight inverse price correlation with the U.S. currency, he said.

The head of the world's third largest gold producer said the shift in the way gold was linked to the dollar was likely to be brought about by a number of factors like fundamental issues of production and consumption and the growth of interest from investors.

"I can see catalysts and reasons as to why those relationships might change," said Wilkins.

The euro's influence could also wane if there were changes in China's foreign exchange policy and a revaluation of the yuan, he said. A stronger euro versus the dollar makes dollar-priced gold cheaper for non-U.S. investors.

Last week the euro sank to an 8-month low after both France and the Netherlands voted against the proposed EU constitution in referendums.

"If China, Japan and the other Asian countries become a basket of currencies then it could become more important than the euro," said Wilkins of the world's No. 3 gold producer.

Gold, as a classic hedge against global investors' worries about inflation or geopolitical instability, has been a beneficiary of the dollar's 3-year decline through the end of 2004.

Gold prices have begun to rebound, even though the dollar has got stronger. On Wednesday, spot gold was trading at $423.40/423.90 per troy ounce.

Gold prices may be about to benefit from both volatility in and a lack of confidence in several of the world's major currencies, with gold's price in euros a key indicator, said analysts on Tuesday.

With the euro down more than 9 percent this year, some analysts are tracking the price of gold in euros as an indicator of demand for hard assets.  

On Tuesday, the price of gold in euros rose to 348 per ounce, its highest since April 2004.

But Asian currencies could attract some investment if China revalued the yuan , removing its peg to the dollar, and a weaker dollar would again provide support for gold prices, they added (ID:nN07443397: Quote, Profile, Research) .

Still as Victor Flores, mining and metals analyst at HSBC, said to Reuters reporters at the Summit: "The dollar goes down relative to the euro. The gold price goes up. And to the extent that we are in that environment, we will continue to see strength in the gold price."

"The potential revaluation of the Chinese currency is more like icing on the cake," he said. "It will continue or keep the trend alive."

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